In a lot of ways, the current imbalances in freight networks reflect the divided purchasing habits of two very different groups of consumers.
On the one side, there are constrained spenders whose incomes have been negatively impacted by the pandemic, according to the latest consumer spending report by Nielson Intelligence unit leader Scott McKenzie. On the other side are insulated spenders whose incomes remain unchanged by the pandemic. It’s similar to the same way motor carriers have been affected differently depending on the commodity they haul.
Nielsen’s global marketing research efforts capture consumer spending behavior at the point of sale and note that even though year-to-date sales in the consumer packaged goods (CPG) sector are up by $62 billion – representing a 13% increase over sales in 2019 – they have been slowing steadily over the last five months. Nielsen’s point-of-sale data shows that, while the size of the average weekly shopping basket is 11% above average compared to 2019, it has steadily declined from peak pandemic levels in March.
Like many commodities DAT has been tracking since the pandemic began, CPG, building materials, lumber, food and beverages and paper products all follow a familiar M-shape, where load volumes spiked at the start of the pandemic, crashed during lockdown, then spiked again as economies reopened and retailers rushed to restock depleted inventories. Nielsen reports that consumer buying habits are changing in real-time, whereas typically it takes months and even years for consumers to adjust.
The latest Monthly Retail Trade Survey from the U.S. Census Bureau explains in part why some shippers and carriers in the CPG sector report higher year-over-year freight volumes, whereas others in the industrial manufacturing sector report the exact opposite. Non-store retail or e-commerce sales in July were up 24.7% year over year. In contrast, clothing and department stores sales were down 20.9% and 13.4% respectively.
The most interesting aspect of the Nielsen report are the survey results, which indicates consumers expect a continuation of their current buying patterns for another six to 12 months and are “hunkering down for a bit of a long haul.” This suggests the DIY trend will continue, with wild fluctuations in freight volumes driven by higher demand for longer shelf-life CPG products, but depressed demand for others, adding more uncertainty for shippers, brokers and carriers.
Dry van trends
According to time and attendance software provider Homebase – key economic recovery metrics that track hours worked – the numbers of employees working and locations open have flatlined since mid-June at around 20% below pre-pandemic levels. This in part explains why contract freight volumes are at best flat overall or even down slightly year over year based on recent ATA and CASS reports.
Complicating freight forecasting is the COVID-19 pandemic and how various industries are impacted in different ways and at different times. This is reflected in the market imbalance we see across all freight markets, driving higher spot market volumes and rates. Adding more volatility to the market is the recent announcement by Union Pacific to add surcharges to small West Coast shippers for any surge volume over and above committed contract volumes.
Railroad equipment capacity is already tight on the West Coast, forcing intermodal shippers to look to LTL and truckload markets to move high-value volume for their core customers. How much intermodal volume moves to road remains to be seen on critical lanes, including Los Angeles-Chicago and Los Angeles-Dallas, but adding to the capacity shortage is also the shortage of 53' intermodal containers and TOFC (trailer on flat cars) railroad equipment.
TOFC is also seen as a source of capacity for large asset-based motor carriers to move road freight by rail during busy times, so with the major railroads exiting this unprofitable segment, small shippers may have no choice but to move retail season freight by road in the coming weeks.
Spot market rates surged again last week in the lead-up to the Labor Day holiday weekend, ending at $2.18/mile (excluding fuel), representing a 5% w/w increase. Rates for the first week of September are 28% higher than the same time in 2019 and the highest recorded in the last five years.